Even under Rule 8D of S. 14A, disallowance can be made only if there is actual nexus between tax-free income and expenditure

The assessee earned dividend income on shares which was exempt from tax. The AO took the view that the investment in shares was made out of borrowed funds on which interest expenditure was incurred and consequently made a disallowance u/s 14A. This was partly upheld by the CIT (A). On further appeal by the assessee, the Tribunal deleted the disallowance by noting that the assessee had proved that the investment in shares was made out of non-interest bearing funds. Related posts:

  1. S. 14A disallowance to be made even if no tax-free income: Special Bench Delhi Cheminvest Ltd vs. ITO (ITAT Delhi Special Bench) The assessee had borrowed...
  2. Analysis of Rule 8D of laying down formula for disallowance of expenses incurred in relation to exempt income In March 2008, Central Board of Direct Taxes (CBDT) inserted Rule 8D...
  3. ITAT cannot remand to apply section 14A if AO in his Assessment order not made disallowance u/s 14A CASE LAW DETAILS Decided by: Mumbai High Court, In The case of:...